Kingstone(KINS) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis Item 1 — Financial Statements This section presents the unaudited condensed consolidated financial statements and detailed notes for Q1 2024 Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity | Metric | March 31, 2024 (Unaudited) (in millions) | December 31, 2023 (in millions) | | :--------------------------------- | :--------------------------------- | :------------------------------ | | Total assets | $318.3 | $317.6 | | Total liabilities | $282.5 | $283.1 | | Total stockholders' equity | $35.7 | $34.5 | - Total assets increased by $659,513, total liabilities decreased by $586,155, and total stockholders' equity increased by $1.2 million from December 31, 2023, to March 31, 2024[15] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section outlines the company's revenues, expenses, and net income or loss, reflecting operational performance | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | :----------------------------------- | | Total revenues | $35.8 | $36.6 | -$0.9 (-2.4%) | | Total expenses | $34.0 | $42.9 | -$9.0 (-20.9%) | | Income (loss) from operations before taxes | $1.8 | $(6.3) | +$8.1 (N/A) | | Net income (loss) | $1.4 | $(5.1) | +$6.5 (N/A) | | Basic EPS | $0.13 | $(0.47) | +$0.60 (N/A) | | Diluted EPS | $0.12 | $(0.47) | +$0.59 (N/A) | - The company reported a net income of $1.4 million for Q1 2024, a significant improvement from a net loss of $5.1 million in Q1 2023, driven by a substantial 20.9% reduction in total expenses[17][19] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity accounts, including net income and other comprehensive income | Metric | January 1, 2024 (in millions) | March 31, 2024 (in millions) | | :--------------------------------- | :---------------------------- | :--------------------------- | | Total Stockholders' Equity | $34.5 | $35.7 | | Net income | N/A | $1.4 | | Change in unrealized losses on AFS securities, net of tax | N/A | $(0.4) | - Total stockholders' equity increased by $1.2 million from January 1, 2024, to March 31, 2024, primarily due to net income, partially offset by an increase in accumulated other comprehensive loss[23] Condensed Consolidated Statements of Cash Flows This section reports cash generated and used by operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | Change (in millions) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :----------------------------------- | | Operating activities | $6.1 | $(3.4) | +$9.5 | | Investing activities | $(11.6) | $2.2 | -$13.8 | | Financing activities | $(0.3) | $(0.3) | -$0.0 | | Net decrease in cash and cash equivalents | $(5.8) | $(1.5) | -$4.3 | | Cash and cash equivalents, end of period | $3.2 | $10.5 | -$7.3 | - Net cash provided by operating activities significantly improved to $6.1 million in Q1 2024 from a $3.4 million outflow in Q1 2023, but increased cash used in investing activities led to a larger overall decrease in cash and cash equivalents[25][26] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and additional information supporting the financial statements Note 1 - Nature of Business and Basis of Presentation This note describes the company's primary business activities and the accounting principles used - Kingstone Companies, Inc. underwrites property and casualty insurance exclusively through its wholly-owned subsidiary, Kingstone Insurance Company (KICO), with 94.4% of direct written premiums in Q1 2024 originating from New York policies[28] - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include all necessary normal recurring adjustments for fair presentation, as per management's opinion[29] Note 2 – Accounting Policies This note outlines significant accounting policies and critical estimates used in financial statements - The Company's continuation as a going concern is dependent on its ability to obtain financing or other funds to satisfy its $19.95 million Notes Payable due December 30, 2024[32] - Management plans to refinance the 2022 Notes through new equity/debt issuance, distributions from KICO, or available invested assets and cash (approximately $1.8 million as of March 31, 2024)[36] - Financial statements require management to make estimates and assumptions, particularly for loss and loss adjustment expense reserves, which are subject to inherent uncertainty and reevaluation[38] Note 3 - Investments This note details the composition, fair value, and income generated from the investment portfolio | Investment Category | March 31, 2024 (Fair Value) (in millions) | December 31, 2023 (Fair Value) (in millions) | | :------------------------------------ | :---------------------------------------- | :------------------------------------------- | | Fixed-maturity securities, held-to-maturity | $6.0 | $6.1 | | Fixed-maturity securities, available-for-sale | $161.2 | $148.9 | | Equity securities | $13.5 | $14.8 | | Other investments | $4.1 | $3.9 | | Total investments | $185.9 | $174.6 | | Investment Income Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :------------------------------------ | :---------------------------------------------- | :---------------------------------------------- | | Net investment income | $1.5 | $1.5 | | Net gains on investments | $0.7 | $1.2 | - As of March 31, 2024, the company held available-for-sale fixed-maturity securities with $16.2 million in gross unrealized losses, primarily from securities held for more than 12 months, which were deemed temporary and not credit losses[44][62] Note 4 - Fair Value Measurements This note provides information on valuation methodologies and inputs for fair value measurements | Investment Category (Fair Value) | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :--------------------------------------- | :--------------------------- | :------------------------------ | | Fixed-maturity securities available-for-sale | $161.2 | $148.9 | | Equity securities | $13.5 | $14.8 | | Total investments, at fair value | $174.8 | $163.7 | | Debt (Fair Value) | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :------------------------ | :--------------------------- | :------------------------------ | | Senior Notes due 2024 | $18.3 | $17.8 | - The hedge fund investment, measured at NAV per share, increased to $4.1 million at March 31, 2024, from $3.9 million at December 31, 2023, with income recorded in net gains on investments[67] Note 5 - Fair Value of Financial Instruments and Real Estate This note presents the fair value of financial instruments and real estate assets by valuation level | Financial Instrument / Asset | March 31, 2024 (Fair Value) (in millions) | December 31, 2023 (Fair Value) (in millions) | Fair Value Level | | :--------------------------------------- | :---------------------------------------- | :------------------------------------------- | :--------------- | | Fixed-maturity securities held-to-maturity | $6.0 | $6.1 | Level 1 | | Fixed-maturity securities available-for-sale | $161.2 | $148.9 | Level 1/2 | | Cash and cash equivalents | $3.2 | $9.0 | Level 1 | | Premiums receivable, net | $13.9 | $13.6 | Level 1 | | Reinsurance receivables, net | $70.7 | $75.6 | Level 3 | | Real estate, net | $3.5 | $3.5 | Level 3 | | Reinsurance balances payable | $19.4 | $12.8 | Level 3 | Note 6 – Property and Casualty Insurance Activity This note details the company's insurance underwriting performance, including premiums, losses, and reserves | Metric | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Direct premiums written | $49.3 | $47.6 | | Ceded premiums written | $(11.2) | $(16.1) | | Net premiums earned | $28.8 | $28.3 | | Loss and loss adjustment expense reserves (end of period) | $122.5 | $124.1 | | Ceding commission revenue | $4.6 | $5.4 | - Net premiums earned increased by 2.0% to $28.8 million in Q1 2024, while ceding commission revenue decreased by 16.1% due to changes in reinsurance treaties[71][101] - Prior year incurred loss and LAE development was favorable by $566,268 for Q1 2024, compared to $3,121 favorable in Q1 2023, reflecting ongoing reserve reevaluation[73] Note 7 – Debt This note provides information on outstanding debt obligations, including terms and covenant compliance | Debt Component | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------- | :--------------------------- | :------------------------------ | | 2022 Notes, net | $18.7 | $18.4 | | Equipment financing | $6.5 | $6.8 | | Total Debt | $25.3 | $25.2 | - The 2022 Notes, with a principal amount of $19.95 million and a 12.0% interest rate, mature on December 30, 2024. Management intends to retire them after September 29, 2024, and before maturity, through refinancing with new equity/debt or KICO distributions[106][108] - The company's Leverage Maintenance Test ratio was 29.2% at March 31, 2024, below the 30% threshold, indicating compliance after a waiver for the September 30, 2023, breach[109] Note 8 – Stockholders' Equity This note details changes in stockholders' equity, including stock-based compensation and dividend policies - Regular quarterly dividends were suspended on November 11, 2022, with future policy at the Board's discretion[114] | Stock-Based Compensation | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Stock options | ~$53,000 | $0 | | Restricted stock awards | ~$213,000 | ~$217,000 | - Warrants to purchase 969,525 shares of Common Stock were issued with a fair value of $993,200, exercisable at $1.00 per share through December 30, 2025[125][126][127] Note 9 – Income Taxes This note explains income tax expense, deferred tax assets/liabilities, and net operating loss carryovers | Income Tax Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Income tax expense (benefit) | $378 | $(1,249) | | Effective tax rate | 20.93% | 19.8% | | Deferred Tax Component | March 31, 2024 (in millions) | December 31, 2023 (in millions) | | :----------------------------- | :--------------------------- | :------------------------------ | | Total deferred tax assets | $15.4 | $15.7 | | Total deferred tax liabilities | $5.1 | $5.2 | | Net deferred income tax asset | $10.3 | $10.6 | - The company has federal net operating loss carryovers of $4.8 million as of March 31, 2024, with no expiration, and state NOLs of approximately $40.7 million, for which a full valuation allowance has been recorded[131] Note 10 – Earnings (Loss) Per Common Share This note presents basic and diluted earnings per share calculations, including dilutive securities | EPS Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Basic EPS | $0.13 | $(0.47) | | Diluted EPS | $0.12 | $(0.47) | | Weighted average common shares outstanding (basic) | 10,999,662 | 10,756,913 | | Weighted average common shares outstanding (diluted) | 11,791,520 | 10,756,913 | - Basic EPS improved to $0.13 in Q1 2024 from $(0.47) in Q1 2023. Diluted EPS for Q1 2024 included 791,858 dilutive securities (stock options, warrants, restricted stock awards), which were anti-dilutive in Q1 2023[19][137][138] Note 11 - Commitments and Contingencies This note discloses contractual obligations, legal matters, and other potential future liabilities - The office lease for KICO's Valley Stream, New York facility expired on March 31, 2024, and was not renewed[141] - Meryl Golden's annual base salary will increase to $550,000 (from $500,000) effective January 1, 2025, under her Third Amended and Restated Employment Agreement, which extends to December 31, 2026[159] - Barry Goldstein's annual salary was reduced to $300,000 (from $500,000) effective October 1, 2023, and he is no longer entitled to a bonus based on net income[153] Note 12 – Employee Benefit Plans This note outlines the company's employee benefit programs and related expenses | Employee Benefit Expense | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Employee bonus plan accrual | ~$82,000 | $0 | | 401(k) plan expense | ~$72,000 | ~$85,000 | - The Kingstone Companies, Inc. Deferred Compensation Plan was terminated effective December 22, 2022, with all Termination Payments to participants to be completed by December 22, 2024[156] Note 13 – Subsequent Events This note reports significant events occurring after the balance sheet date but before issuance - Effective April 15, 2024, CEO Meryl Golden's Third Amended and Restated Employment Agreement extends her term to December 31, 2026, and increases her annual base salary to $550,000, effective January 1, 2025[159] - On April 5, 2024, the company filed a $50 million shelf registration statement on Form S-3 for equity and debt securities, which became effective on April 22, 2024, allowing for future offerings[162] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Kingstone's financial performance, strategic initiatives, and operational results Company Overview This section introduces Kingstone Insurance Company's business, market position, and revenue sources - Kingstone Insurance Company (KICO) is a New York-domiciled carrier, writing personal lines and commercial auto insurance, and was the 15th largest writer of homeowners insurance in New York in 2023[163] - For Q1 2024, 94.4% of KICO's direct written premiums originated from New York policies, categorized as 'Core' business, with the remaining as 'non-Core'[163] - Revenue sources include earned premiums, ceding commissions from quota share reinsurance, net investment income, and net realized/unrealized investment gains/losses[165] Product Lines This section describes the company's insurance product offerings, focusing on personal lines - The largest line of business is personal lines, consisting of homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies[168] - The company ceased underwriting commercial lines and commercial umbrella risks in July 2019 due to poor performance, with no commercial liability policies in-force as of March 31, 2024[169] Key Measures This section defines core financial metrics for assessing underwriting profitability and efficiency - Net loss ratio: The ratio of net losses and LAE incurred to net premiums earned, measuring underwriting profitability[172] - Net underwriting expense ratio: The ratio of acquisition costs and other underwriting expenses (less ceding commission revenue and other income) to net premiums earned, measuring operational efficiency[173] - Net combined ratio: The sum of the net loss and net underwriting expense ratios, indicating overall underwriting profit (below 100% is profitable without investment income)[174] Critical Accounting Estimates This section highlights key accounting estimates, including loss reserves and deferred income taxes - Loss and Loss Adjustment Expense (LAE) Reserves are established for reported and incurred but not reported (IBNR) claims, estimated on an undiscounted basis using case-basis valuations, statistical analyses, and actuarial methodologies, subject to inherent uncertainty[178] - Reinsurance receivables are management's best estimate of recoverable losses and LAE from reinsurers, estimated using methodologies similar to loss and LAE reserves[181] - Deferred Income Taxes are recognized for temporary differences between financial and tax carrying amounts, with the effective tax rate based on GAAP income at statutory rates, adjusted for non-taxable/deductible items and credits[182][183] Kingstone 2.0 (completed) and Kingstone 3.0 (underway) This section details strategic initiatives to improve profitability and underwriting discipline - Kingstone 2.0 initiatives included strengthening management, reducing expenses through technology (new policy management system), developing a segmented product suite (Kingstone Select), and better managing catastrophe exposure[185] - Kingstone 3.0 focuses on aggressively reducing non-Core business (52.1% decrease in policy count YoY), adjusting pricing to stay ahead of loss trends (24.2% increase in Core homeowners premiums YoY), tightly managing reinsurance, and reducing the net expense ratio to 33% by year-end 2024 (achieved 31.3% in Q1 2024)[186][187][190] | Metric | March 31, 2024 | March 31, 2023 | Change | Percent Change | | :--------------------------------- | :------------- | :------------- | :----- | :------------- | | Core Policies In Force | 66,991 | 72,081 | (5,090) | (7.1)% | | Non-Core Policies In Force | 9,080 | 18,945 | (9,865) | (52.1)% | | Total policies in force | 76,071 | 91,026 | (14,955) | (16.4)% | | Core Direct written premiums (in thousands) | $46,587 | $41,427 | $5,160 | 12.5% | | Non-Core Direct written premiums (in thousands) | $2,738 | $6,170 | $(3,432) | (55.6)% | | Total direct written premiums (in thousands) | $49,325 | $47,597 | $1,728 | 3.6% | Consolidated Results of Operations This section provides a comprehensive analysis of the company's financial performance | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Total revenues | $35,765 | $36,628 | $(863) | (2.4)% | | Total expenses | $33,961 | $42,931 | $(8,970) | (20.9)% | | Net income (loss) | $1,427 | $(5,055) | $6,482 | N/A | | Net loss ratio | 62.0% | 88.6% | (26.6) ppt | (30.0)% | | Net underwriting expense ratio | 31.3% | 34.7% | (3.4) ppt | (9.8)% | | Net combined ratio | 93.3% | 123.3% | (30.0) ppt | (24.3)% | - The company achieved a net income of $1.4 million in Q1 2024, a significant improvement from a $5.1 million net loss in Q1 2023, driven by a 20.9% reduction in total expenses and a 30.0 percentage point decrease in the net combined ratio[191][193] Direct Written Premiums This section analyzes trends in premiums written across product lines, distinguishing core and non-core business | Product Line | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Personal lines | $45,740 | $44,171 | +$1,569 | 3.5% | | Livery physical damage | $3,562 | $3,406 | +$156 | 4.6% | | Total direct written premiums | $49,325 | $47,597 | +$1,728 | 3.6% | - Core business direct written premiums increased by 12.5% to $46.6 million, while non-Core business premiums decreased by 55.6% to $2.7 million, aligning with the Kingstone 3.0 strategy to reduce non-Core business[198] Net Written Premiums and Net Premiums Earned This section discusses the impact of reinsurance on premiums and earned premium recognition | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :----------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Net written premiums | $38,095 | $31,492 | +$6,603 | 21.0% | | Net premiums earned | $28,820 | $28,255 | +$565 | 2.0% | - Net written premiums increased by 21.0% due to changes in the personal lines quota share reinsurance treaty, while net premiums earned increased by 2.0% due to reduced quota share rates and the run-off of a prior treaty[199][200][203] Ceding Commission Revenue This section explains changes in revenue received from reinsurers for ceding premiums | Ceding Commission Component | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Provisional ceding commissions earned | $4,555 | $5,447 | $(892) | (16.4)% | | Contingent ceding commissions earned | $12 | $(1) | $13 | N/A | | Total ceding commission revenue | $4,567 | $5,445 | $(878) | (16.1)% | - The decrease in provisional ceding commissions earned was due to lower premiums ceded under the new 27% quota share treaty compared to the prior 30% treaty, despite an increase in ceding commission rates[206] Net Investment Income This section details income generated from the company's investment portfolio, including yields | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Net investment income | $1,503 | $1,541 | $(38) | (2.5)% | | Average yield on non-cash invested assets | 3.77% | 3.35% | +0.42 ppt | 12.5% | | Cash and invested assets (in millions) | $189.1 | $190.7 | $(1.6) | (0.8%) | Net Gains on Investments This section reports realized and unrealized gains or losses from investment activities | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Net gains on investments | $726 | $1,225 | $(499) | (40.7)% | | Unrealized gains on equity and other investments | $819 | $1,228 | $(409) | (33.3%) | | Net realized (losses) on sales of investments | $(92) | $(3) | $(89) | 2966.7% | Other Income This section covers miscellaneous income sources not categorized elsewhere | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :----------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Other income | $149 | $161 | $(12) | (7.5)% | Net Loss and LAE This section analyzes incurred losses and loss adjustment expenses, including loss ratios | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Net loss and LAE | $17,860 | $25,039 | $(7,179) | (28.7)% | | Net loss ratio | 62.0% | 88.6% | (26.6) ppt | (30.0)% | - Catastrophe losses contributed 5.2 points to the loss ratio in Q1 2024 ($1.486 million), significantly lower than 13.2 points in Q1 2023, due to minimal winter-related catastrophe claims[214] - The underlying loss ratio (excluding catastrophe and prior year development) improved by 16.6 points to 58.8% in Q1 2024, reflecting lower non-catastrophe frequency and severity[215] Commission Expense This section discusses costs associated with acquiring new business, including agent commissions | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Commission expense | $7,852 | $8,540 | $(688) | (8.1)% | | % of direct earned premiums | 15.7% | 17.1% | (1.4) ppt | (8.2%) | - The decrease in commission expense was driven by reduced commission rates on legacy policies and lower rates on Select products, partially offset by a $303,000 accrual for estimated contingent commissions[217] Other Underwriting Expenses This section details administrative and operational costs directly related to underwriting | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Other underwriting expenses | $5,881 | $6,872 | $(991) | (14.4)% | | % of direct earned premiums | 11.8% | 13.8% | (2.0) ppt | (14.5%) | - Salaries and employment costs decreased by 11.3% to $2.601 million, primarily due to staff reductions related to non-Core business, partially offset by hiring higher-level managers and staff for Kingstone 2.0 and 3.0 strategies[220] Other Operating Expenses This section covers general and administrative expenses not directly tied to underwriting | Component | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Employment costs | $157 | $94 | +$63 | 67.0% | | Equity compensation | $266 | $217 | +$49 | 22.6% | | Total other operating expenses | $778 | $663 | +$115 | 17.3% | - The increase in employment costs was due to fluctuations in deferred compensation liability related to changes in the underlying invested portfolio[222] Depreciation and Amortization This section explains the non-cash expense related to asset usage and obsolescence | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Depreciation and amortization | $597 | $808 | $(211) | (26.1)% | - The decrease is attributed to the completion and deployment of customized policy management software, enabling the consolidation of multiple legacy systems and the retirement of older assets with shorter useful lives[223] Interest Expense This section reports the cost of borrowing incurred on the company's debt obligations | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | Percent Change | | :------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Interest expense | $994 | $1,010 | $(16) | (1.6)% | Income Tax Expense (Benefit) This section details the company's tax obligations or benefits based on pre-tax income or loss | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Income tax expense (benefit) | $378 | $(1,249) | +$1,627 | | Effective tax rate | 20.93% | 19.8% | +1.13 ppt | | Income (loss) before taxes | $1,805 | $(6,304) | +$8,109 | Net Income (Loss) This section presents the company's ultimate profitability or loss after all revenues and expenses | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------ | :----------------------------------------------- | :----------------------------------------------- | | Net income (loss) | $1,427 | $(5,055) | Additional Financial Information This section provides supplementary financial data, including premiums, losses, and loss ratios by product | Product Type | Gross Premiums Written (Q1 2024) (in thousands) | Net Premiums Written (Q1 2024) (in thousands) | Net Premiums Earned (Q1 2024) (in thousands) | Net Loss and LAE (Q1 2024) (in thousands) | Net Loss Ratio (Q1 2024) | | :----------------------- | :---------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :---------------------------------------- | :----------------------- | | Personal lines | $45,740 | $34,516 | $25,092 | $14,712 | 58.6% | | Livery physical damage | $3,562 | $3,562 | $3,708 | $1,681 | 45.3% | | Other | $22 | $17 | $19 | $(13) | 1.2% | | Commercial lines (in run-off) | N/A | N/A | N/A | $303 | N/A | - Personal lines net loss ratio significantly improved to 58.6% in Q1 2024 from 90.2% in Q1 2023[229] Insurance Underwriting Business on a Standalone Basis This section presents the financial results of the insurance underwriting segment | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Total revenues | $35,692 | $36,585 | | Total expenses | $32,287 | $41,373 | | Net income (loss) | $2,686 | $(3,850) | | Net loss ratio | 62.0% | 88.6% | | Net underwriting expense ratio | 31.3% | 34.7% | | Net combined ratio | 93.3% | 123.3% | - The insurance underwriting business reported a net income of $2.686 million in Q1 2024, a substantial improvement from a $3.850 million net loss in Q1 2023, with the net combined ratio decreasing by 30.0 percentage points[230][234] Investments This section provides a detailed overview of the company's investment portfolio Portfolio Summary This section summarizes the types and fair values of securities held in the investment portfolio | Fixed-Maturity Securities (AFS) | March 31, 2024 (Fair Value) (in millions) | December 31, 2023 (Fair Value) (in millions) | | :------------------------------------------ | :---------------------------------------- | :------------------------------------------- | | U.S. Treasury securities | $35.7 | $20.9 | | Political subdivisions | $13.3 | $13.4 | | Corporate and other bonds | $68.6 | $70.1 | | Residential mortgage and other asset backed securities | $43.6 | $44.5 | | Total AFS fixed-maturity securities | $161.2 | $148.9 | | Equity Securities | March 31, 2024 (Fair Value) (in millions) | December 31, 2023 (Fair Value) (in millions) | | :------------------------ | :---------------------------------------- | :------------------------------------------- | | Preferred stocks | $9.6 | $10.7 | | Fixed income ETFs | $3.0 | $3.0 | | Mutual funds | $0.9 | $0.9 | | FHLBNY common stock | $0.1 | $0.1 | | Total Equity Securities | $13.5 | $14.8 | | Held-to-Maturity Securities | March 31, 2024 (Fair Value) (in millions) | December 31, 2023 (Fair Value) (in millions) | | :------------------------------------------ | :---------------------------------------- | :------------------------------------------- | | U.S. Treasury securities | $1.2 | $1.2 | | Corporate and other bonds | $4.1 | $4.2 | | Total HTM fixed-maturity securities | $6.0 | $6.1 | Credit Rating of Fixed-Maturity Securities This section details the credit quality and maturity characteristics of fixed-maturity investments | Rating Category | March 31, 2024 (% of Fair Value) | December 31, 2023 (% of Fair Value) | | :------------------------------------------ | :------------------------------- | :---------------------------------- | | U.S. Treasury securities | 22.1% | 14.1% | | Corporate and municipal bonds (AAA-BB) | 49.8% | 54.9% | | Residential mortgage backed, asset backed, and other collateralized obligations (AAA-CC, Non rated) | 28.1% | 31.1% | | Total | 100.0% | 100.0% | | Metric | March 31, 2024 | December 31, 2023 | | :-------------------------- | :------------- | :---------------- | | Weighted average effective maturity | 6.9 years | 7.8 years | | Weighted average final maturity | 10.8 years | 11.9 years | | Effective duration | 3.6 years | 4.1 years | Fair Value Consideration This section discusses valuation methods and unrealized gains/losses within the investment portfolio - As of March 31, 2024, 67% of the investment portfolio recorded at fair value was priced based on quoted market prices (Level 1), compared to 65% at December 31, 2023[245] - The company held 140 fixed-maturity securities with gross unrealized losses totaling $16.2 million at March 31, 2024, which were deemed temporary and not credit losses, with management intending to hold them until anticipated recovery of fair value[247] Liquidity and Capital Resources This section assesses the company's ability to meet financial obligations, including cash flows and reinsurance Cash Flows This section analyzes the sources and uses of cash from operating, investing, and financing activities | Cash Flow Activity | Three Months Ended March 31, 2024 (in millions) | Three Months Ended March 31, 2023 (in millions) | | :--------------------------------- | :---------------------------------------------- | :---------------------------------------------- | | Operating activities | $6.1 | $(3.4) | | Investing activities | $(11.6) | $2.2 | | Financing activities | $(0.3) | $(0.3) | | Net decrease in cash and cash equivalents | $(5.8) | $(1.5) | | Cash and cash equivalents, end of period | $3.2 | $10.5 | - Net cash provided by operating activities increased by $9.645 million in Q1 2024, primarily due to an increase in net income (adjusted for non-cash items) and favorable fluctuations in operating assets and liabilities[256] - KICO had a negative unassigned surplus as of March 31, 2024, restricting dividend payments without regulatory approval, though a $2.3 million distribution from paid-in capital is expected in Q2 2024[251] Reinsurance This section describes the company's reinsurance arrangements and their impact on risk exposure - The company entered into a new 27% quota share reinsurance treaty for personal lines (2024/2025 Treaty) effective January 1, 2024, replacing the 30% 2023/2024 Treaty[260] - Excess of loss and catastrophe reinsurance treaties will expire on June 30, 2024, with no coverage in effect from July 1, 2024, through January 1, 2025, unless renewed[272] | Treaty Type | Treaty Period | Percent Ceded (Quota Share) | Risk Retained (Initial $1M losses) | Catastrophe Coverage (Excess of Quota Share) | | :-------------------- | :-------------------------- | :-------------------------- | :--------------------------------- | :------------------------------------------- | | 2024/2025 Treaty | Jan 1, 2024 - Jan 1, 2025 | 27% | $730,000 | N/A (subject to renewal) | | 2023/2024 Treaty | Jan 1, 2023 - Jan 1, 2024 | 30% | $700,000 | $315,000,000 (July 1, 2023 - June 30, 2024) | Inflation This section discusses the effects of inflation on loss expenses and the investment portfolio - Inflation impacts loss and loss adjustment expenses, especially medical and hospital rates, and influences interest rates, affecting investment portfolio market value and new investment yields[268][269] - Continuing effects of prior years' economic inflation in Q1 2024 led to sustained higher interest rates, widening credit spreads, lower public equity valuations, and significant financial market volatility, negatively impacting fixed income securities and loss and LAE[270] Off-Balance Sheet Arrangements This section discloses any material off-balance sheet transactions or obligations - The company has no material off-balance sheet arrangements that would significantly affect its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[271] Outlook This section provides management's perspective on future financial performance and market conditions - Net premiums earned are influenced by competitive market conditions and economic factors. The company's underwriting changes prioritize profitability over growth, leading to a potential slowdown in premium growth compared to prior years[273] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to smaller reporting companies, as per SEC regulations - This item is not applicable to smaller reporting companies[274] Item 4. Controls and Procedures The company's disclosure controls and procedures were effective as of March 31, 2024 Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures - As of March 31, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective in recording, processing, summarizing, and reporting required information on a timely basis[275][276] Changes in Internal Control over Financial Reporting This section reports on any material changes to internal control over financial reporting - There have been no material changes in the company's internal control over financial reporting during the most recently completed fiscal quarter[278] Inherent Limitation on Effectiveness of Controls This section acknowledges the inherent limitations of internal controls - Internal control over financial reporting, by its inherent limitations, may not prevent or detect misstatements, and projections of effectiveness to future periods are subject to risks of inadequacy or deterioration[280] PART II — OTHER INFORMATION This section covers legal proceedings, risk factors, sales of equity, defaults, and exhibits Item 1. Legal Proceedings The company reported no legal proceedings for the period - The company has no legal proceedings to report[282] Item 1A. Risk Factors No material changes to the risk factors disclosed in the 2023 Annual Report - No material changes to the risk factors disclosed in Part I, Item 1A of the Company's 2023 Annual Report[283] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section is left blank, indicating no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities and use of proceeds to report[290] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company has no defaults upon senior securities to report[284] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[285] Item 5. Other Information The company reported no other information for the period - No other information to report[286] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL - Exhibits include Restated Certificate of Incorporation, By-laws, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350), and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase documents[287] Signatures The report is duly signed by the CEO and CFO of Kingstone Companies, Inc - The report was signed by Meryl Golden, Chief Executive Officer, and Jennifer Gravell, Chief Financial Officer, on May 15, 2024[290][291]